Strategies Competitive RI Final v.6

STRATEGIES FOR A COMPETITIVE RHODE ISLAND: ASSESSING INNOVATION
POTENTIAL WITH EMPHASIS ON ENERGYAND EASE OF DOING BUSINESS
Joseph W. Roberts, Roger Williams University
Suchandra Basu, Rhode Island College
Ramesh Mohan, Bryant University

Table of Contents
Table of Contents............................................................................................................................ii
Acknowledgements........................................................................................................................ iv
Executive Summary........................................................................................................................ v
Recommendations.....................................................................................................................vii
General..................................................................................................................................vii
Energy..................................................................................................................................viii
Ease of Doing Business ......................................................................................................... ix
Strategies for a Competitive Rhode Island ..................................................................................... 1
Research Question .......................................................................................................................... 1
1. Assessing Innovation Potential (Joseph W. Roberts, Principal Investigator)............................. 2
Methodology............................................................................................................................... 4
Rhode Island and Comparative Regional Results....................................................................... 5
Component Index Results for the Regional Innovation Index.................................................... 8
Human Capital Index.............................................................................................................. 8
Economic Capital Index........................................................................................................ 11
Business Environment Index ................................................................................................ 13
Energy Index......................................................................................................................... 14
Quality of Life Index ............................................................................................................ 16
Healthcare Index................................................................................................................... 18
Ideas Index............................................................................................................................ 20
Prosperity Index.................................................................................................................... 22
Conclusions and Recommendations ......................................................................................... 25
Recommendations................................................................................................................. 26
2: Energy (Suchandra Basu, Principal Investigator)..................................................................... 28
What is a market based cap-and-trade program?...................................................................... 29
Historical Background, Program Examples and Outcomes...................................................... 30
The US Acid Rain Program.................................................................................................. 30
European Union Emission Trading System (EU ETS)......................................................... 31
California’s Global Warming Solutions Act (AB32) ........................................................... 32
The Regional Green House Gas Initiative (RGGI)............................................................... 34
CO2 Allowance Value and Revenue under RGGI.................................................................... 35
Pathways for Recycling Auction Revenue ............................................................................... 37
Benefits of Participating in the Regional Green House Gas Initiative ..................................... 41
CO2 Emissions: Regional and Rhode Island Trends............................................................. 41
Economic Growth: Regional and Rhode Island Trends ....................................................... 46

iii
CO2 Allowance Value Investment Choices and Returns: Regional and Rhode Island Summary
............................................................................................................................................... 49
Further Discussion on Power Sector Impacts in Rhode Island................................................. 55
Conclusions and Recommendations: Looking Ahead for Rhode Island .................................. 58
3. Ease of Doing Business (Ramesh Mohan, Principal Investigator)........................................... 62
CNBC 2014 Ease of Doing Business Report............................................................................ 64
Forbes Report: The Best States for Business and Careers........................................................ 66
How does this apply to Rhode Island?...................................................................................... 68
Entrepreneurial resources...................................................................................................... 74
Conclusion and Recommendations........................................................................................... 78
Recommendations..................................................................................................................... 79
Appendix A: Regional Innovation Index and Metrics.................................................................. 81
Appendix B................................................................................................................................... 84

Acknowledgements
This research report was produced through a grant from The College and University
Research Collaborative of Rhode Island, an innovative project to bring academic research and
expertise to state policymakers.
The authors of the report want to acknowledge the special contributions of the following
students who helped in the research and preparation of this report.
Andres Pernia
Bryant University
Julia Raso
Roger Williams University
Dennis Slavin
Rhode Island College

Executive Summary
The media portrait of Rhode Island has often been one of a stagnant economy with minimal
opportunities for development. The perception is that Rhode Island lacks any of the basic tools for
economic development. In the 2014 race for Governor, the candidates all sought to change the
status quo perception of Rhode Island. Governor Gina Raimondo’s budget proposal, introduced
March 12, 2015, seeks to promote economic development by targeting specific industries,
promoting innovation, creating jobs, promoting energy efficiency, and responsibly redeveloping
the Route 195 land. This report helps make the case that these goals are not only possible, but
essential to the future of Rhode Island.
In Part 1, “Assessing Innovation Potential,” a comprehensive Regional Innovation Index is
created based on eight dimensions or Component Indices: Human Capital, Economic Capital,
Business Environment, Energy, Quality of Life,
Healthcare, Ideas, and Prosperity. Rhode Island fares
dismally on two Indices, Economic Capital and
Business Environment, and average on the
Prosperity Index. These three metrics shape the
negative perception of the Rhode Island economy.
The narrative that the business climate is unfriendly
and lacks resources creates an economic environment that is not as prosperous as her neighbors.
The Quality of Life Index is merely average and seems to be a reflection of the media portrayal of
the state. However, the picture is entirely bleak. Rhode Island does well on the Human Capital and
Ideas Indices, which measure the quality of the workforce in terms of education and their ability
to generate ideas, respectively. Both of these measures are critical to innovation and will need to
Rhode Island Rank and Grade on Regional
Innovation Index and Sub-Indices
Innovation Index Rank Grade
Human Capital 14 B-
Economic Capital 45 D-
Business Environment 49 F
Energy 1 A
Quality of Life 28.5 C
Healthcare 9 B+
Ideas 6.5 B+
Prosperity 26 C
Regional Innovation Index 20 C+
Source: Author

vi
be tapped to promote Governor Raimondo’s budget agenda. Rhode Island does very well on the
Healthcare Index and this should be something that the state uses to target industries.
Part 2 explores the state of “Energy” and the environmental impact thereof, is in greater
detail. Rhode Island ranks first overall on the Energy Index. The state also ranked third, with
Oregon and Vermont, on the 2014 American Council for an Energy-Efficient Economy (ACEEE)
scorecard. However, both the Energy Index, based on data from a single year (2012, the most
current for available data) as well as the ACEEE scorecard, also based on annual changes, offers
a short-term perspective on the state’s environmental and energy use record. In contrast, this
segment applies a necessary long-term lens to understand the relationship between economic
growth, energy use, and carbon dioxide (CO2) emissions in the state. A detailed case study on
Rhode Island’s participation in the CO2 cap and trade program titled Regional Green House Gas
Initiative (RGGI) advances the growth-energy analysis. Results from trend analyses conducted
using data from 1990-2012 (the last year of state level data availability) show economic growth
occurred in the state at the cost of higher levels of energy use and CO2 emissions which continued
into the first RGGI compliance period. This experience is unlike other RGGI neighbors whose
economic growth has been progressively less energy intensive. Based on analysis of electricity
price movements during the same period, the report concludes that the energy efficiency programs
currently being funded by the RGGI CO2 allowance auction proceeds may not be adequately
managing electricity demand in the state. A program review and scope adjustment is required.
Reallocating RGGI dollars over a diverse set of public investment priorities would incentivize
innovation in green technologies, attract business capital, grow the economy, create jobs, reduce
energy dependence and promote long run environmental sustainability.

vii
In part 3, using several reports in measuring the “Ease of Doing Business” index, this study
explores in detail the best and worst states in several categories. CNBC and Forbes studies give
states points based on their performance pertaining to a number of broad categories that range from
the cost of doing business, to access to capital. These reports prove that states with a friendly
business environment tend to attract more business activities than others, creating a competitive
advantage that ultimately spurs economic development. For the fourth year in a row, Rhode Island
ranked in the bottom two. The state’s poor performance in Workforce (including education level,
unionization, and right to work policies), Economy, and Business Friendliness coupled with the
worst score in the Infrastructure and Transportation category led to the lowest overall score among
all states.
Recommendations
General
1. Develop a clear plan to capitalize the generation of ideas in Rhode Island and on the high
quality of education and expand educational opportunities, particularly in Science,
Technology, Engineering, and Math, by creating special innovation districts with
appropriate business development tools and infrastructure to foster economic
development. Two innovation districts in the former Route 195 land and in Quonset
should be the initial sites developed with future sites located in other areas of the state.
These innovation districts should lead the state, and the country, to developing ideas and
products for a green energy economy.
2. Use the high quality of healthcare and the investment in research, to make Rhode Island’s
a hub of high quality medical care in areas not served by nearby centers of excellence in

viii
Boston and New York. By working with the leading healthcare providers, Lifespan, Care
New England, Brown University Medical School, Rhode Island must work to continue
to expand healthcare as an economic development engine.
3. Develop a clear system to improve quality of life and prosperity in Rhode Island by
making housing more affordable, increasing employment, increasing wages, and
expanding opportunities for all Rhode Islanders. Use tax credits to target specific
development projects and entrepreneurs, redevelop and improve infrastructure including
transit hubs that serve high growth communities or communities with large underserved
populations, streamline governmental services and improve government accountability
(including ethics reform), and expand educational opportunities to improve overall
quality of life.
Energy
4. Rigorously assess the returns on energy efficiency programs currently financed with
RGGI funds to understand their effectiveness at the margin and inform long term
program priorities such as investments on demand side management strategies. The
preliminary long term analysis presented raises important questions about the overall
efficacy of Rhode Island’s current suite of energy efficiency programs in addressing long
term policy goals including (1) to what extent are existing EE programs effectively
managing electricity consumption, demand, and prices? (2) Were post 2012 gains in
lower electricity sales and cost savings made independent of the lag effect of the
economic slowdown that hit the state hard? (3) What other energy efficiency programs
should Rhode Island fund for broader long term program success?

ix
5. Rigorously assess and consider distributing RGGI funds over more program categories,
particularly renewable energy and public transportation initiatives in the near to medium
term, for a blended investment approach shown to maximize net investment benefits in
other states. RI should consider diversifying its public investment portfolio to include
programs such as renewable energy, promoting clean public transportation, worker
retraining, bill assistance or a combination of these strategies based on rigorous regional
economic modeling for the state and its own medium and long-term goals for economic
growth, energy use, environmental sustainability, and social equity. The blended
approach is shown to maximize long term emissions reductions, output and jobs growth.
6. Assess current strengths and position the state to reap the benefits of potential expansion
of RGGI to include states outside the current consortium looking to meet the EPA’s new
Clean Power Plan standards. Rhode Island should be prepared to leverage its
programmatic and institutional experience with cap and trade programs in general to
quickly and seamlessly transition to a larger CO2 auction market with higher revenue
earning potential as other states look to RGGI to fulfill EPA’s Clean Power Plan goals
that regulates CO2 emissions from the power sector nationwide. Potential linking of
RGGI with California’s AB32 program could earn even higher revenue if the state is
prepared to take advantage of these changes.
Ease of Doing Business
7. Build a robust business ecosystem by altering the corporate tax rate, franchise tax, and
other tax incentives to encourage private investment, especially from small and medium
enterprises. Offer entrepreneurial services, connect entrepreneurs with banks and venture
capitalists, and reduce the prerequisites needed. Improve upon transportation services

x
especially improving T.F. Green airport services domestically and internationally, and
creating hubs for Taxi/Bus/Train in other parts of RI.
8. Promote Rhode Island as a state where businesses can flourish by cultivating industry
branding, create a marketing strategy for struggling sectors, coordinate efforts to promote
Rhode Island’s successful companies, encourage foreign direct investment (FDI) by
creating Special Economic Mega Zones (SEMZs) and/or Free Economic Zones (FEZs),
and create a business friendly one-stop E-Commerce site for small business startups and
firms intending to export.
9. Provide education and training opportunities for low-skilled workers and take advantage
of existing university programs to activate the high-skilled labor force. Consolidate,
streamline and improve the quality of education in the public school system.

STRATEGIES FOR A COMPETITIVE RHODE ISLAND: ASSESSING INNOVATION
POTENTIAL WITH EMPHASIS ON ENERGYAND EASE OF DOING BUSINESS
Research Question
How can Rhode Island be regionally and nationally competitive? To answer this complex
question, our collaborative research team started with the first three original questions provided by
policy leaders on regional competitiveness, focusing specifically on energy initiatives, non-
monetary incentives, and factors influencing business development and location/relocation.1
We
developed a unique framework to first, individually and rigorously, analyze each of these issues,
then explore the synergies across them for a holistic approach to regional competition. Our ultimate
goal for this research analysis project is to provide an index or report card of Rhode Island’s
capacity for innovation. Beyond that, two critical and overlapping, albeit broad, dimensions:
energy and ease of doing business were emphasized as specific case studies where Rhode Island
can make significant efforts with tangible results. Understanding where Rhode Island falls on key
metrics of innovation is critical to elevating the state regionally and nationally including keeping
and attracting new businesses and citizens. The energy component is important because it also
offers an understanding of how the Ocean State might innovate to be more competitive in the long-
run, particularly in light of recent federal energy mandates and concern for the economics of
climate change mitigation and adaptation.2
Finally, Rhode Island is plagued by a stunted business
1
See “2014/2015 Research Questions Posed by Policy Leaders” presented at the initial Collaborative working group
meeting on June 24, 2014.
2
See International Panel on Climate Change (IPCC), “Summary for Policymakers: Climate Change 2014:
Mitigation of Climate Change,” (2014), http://report.mitigation2014.org/spm/ipcc_wg3_ar5_summary-for-
policymakers_approved.pdf and “Summary for Policymakers: Climate Change 2014: Impacts, Adaptation, and
Vulnerability,” (2014), http://ipcc-wg2.gov/AR5/images/uploads/WG2AR5_SPM_FINAL.pdf

2
climate and understanding how stunted it is will allow policy makers the evidence to implement
meaningful change.
1. Assessing Innovation Potential (Joseph W. Roberts, Principal Investigator)
Providence, and by extension, Rhode Island often receives praise for a high quality of life3
but Rhode Island is suffering from slow economic growth4
and out-migration of people.5
Why
does Rhode Island suffer so? Why does Rhode Island seem to lag behind her neighbors in the
region? What steps must Rhode Island take to become competitive in a complex global economy?
In December 2004, The Council on Competitiveness held the National Innovation Summit in
Washington, D.C. as the culmination of fifteen months of meetings and discussions seeking to
encourage innovation in the United States to allow the country to remain at the forefront of the
global economy. In 2005, the Council published the “Innovate America: National Innovation
Initiative Summit and Report,” which outlined the critical recommendations of the committees and
a blueprint to strengthen the U.S. economy in all areas.6
In conjunction with this effort, the Council
on Competitiveness also prepared the “Measuring Regional Innovation: A Guidebook for
Conducting Regional Innovation Assessments,” for the Economic Development Administration of
3
See for example Livability which ranks Providence the #2 downtown for 2014 (http://livability.com/top-10/top-10-
best-downtowns-2014/providence-/ri), Travel and Leisure Magazine which ranks Providence the #2 best city for
food snobs (http://www.travelandleisure.com/articles/americas-best-cities-for-foodies), or Architectural Digest
naming Providence the country’s best small city (http://www.architecturaldigest.com/ad/travel/2014/providence-
rhode-island-guide-hotels-restaurants-shops-article).
4
Scott Cohn, “Bottom State Rhode Island Struggles to Move the Needle,” CNBC (June 24, 2014).
http://www.cnbc.com/id/101766880#.
5
J. Scott Moody and William J. Felkner, “Leaving Rhode Island: Policy Lessons from Rhode Island’s Exodus of
People and Money,” Providence, R.I.: Ocean State Policy Research Institute, 2011. http://www.rifreedom.org/wp-
content/uploads/OSPRI_LeavingRI_FINAL.pdf
6
Council on Competitiveness, “Innovate America: National Innovation Initiative Summit and Report,” (Washington,
DC: Council on Competitiveness, 2005). http://www.compete.org/images/uploads/File/PDF%20Files/
NII_Innovate_America.pdf.

3
the U.S. Department of Commerce.7
Both “Innovate America” and “Measuring Regional
Innovation” argue that innovation breeds productivity which, in turn, fosters prosperity. “The
‘Clusters of Innovation’ project showed that regions that embrace innovation and productivity as
the foundation of economic development strategy are the most successful.”8
The cover of
“Innovate America” lists ten key challenges for states on the path to creating an innovation
economy:
educate next-generation innovators; deepen science and engineering skills; explore
knowledge intersections; equip workers for change; support collaborative
creativity; energize entrepreneurship; reward long-term strategy; build world class
infrastructure; invest in frontier research; attract global talent, and create high wage
jobs.9
Two key questions guided this section: Where does Rhode Island fall on key dimensions of
innovation? What is Rhode Island’s position relative to its peers in terms of innovation and
competitiveness? In order to change the course of Rhode Island’s economic future, policy makers
must know what the state does well and what it does poorly, particularly on the innovation front.
For Rhode Island to develop its economy it must discover and improve its relative position vis-à-
vis its regional peers and other states across the country. In fact, “Measuring Regional Innovation”
suggests that the exercise is important “to develop a strong set of hypotheses about regional
strengths and weaknesses.”10
Of course, here we are working on state strengths and weaknesses.
The working groups that preceded the “Innovate America” report proposed development of three
critical areas as the foundation of innovation in the 21st
century global economy: “1. Talent — ‘the
7
Council on Competitiveness, “Measuring Regional Innovation: A Guidebook for Conducting Regional Innovation
Assessments,” (Washington, DC: Council on Competitiveness, 2005). http://www.compete.org/images/uploads/
File/PDF%20Files/Regional_Innovation_Guidebook.pdf.
8
Ibid., p. 14.
9
Council on Competitiveness, “Innovate America,” cover.
10
Council on Competitiveness, “Measuring Regional Innovation,” p. 20.

4
human dimension of innovation;’ 2. Investment — ‘the financial dimension of innovation;’ 3.
Infrastructure — ‘both the physical as well as legal and policy.’”11
Methodology
Building on the metrics proposed in the “Measuring Regional Innovation,” data from public
and private sources was collected on eight distinct dimensions or Component Indices: Human
Capital, Economic Capital, Business Environment, Energy, Quality of Life, Healthcare, Ideas, and
Prosperity. For each Component Index, the data addressing that particular metric can be thought
of as a sub-dimension. The measured metrics (and sources) for each component index are shown
in Appendix A. For each metric, every state was ranked by using an average rank system.12
Next,
the individual metric ranks were averaged to create a cumulative Index for each component.
Finally, each state’s Component Index was then ranked and letter grade was assigned for every
state plus the District of Columbia.13
An overall Regional Competitiveness Composite Index was
calculated as the average of each of the Component Indices. The composite was then ranked and
a grade was assigned as on the sub-dimension indices.
11
Council on Competitiveness, “Innovate America,” p. 19.
12
In an average rank system, if more than one states has the same rank, the average of the states is returned. For
example, if two states have the same score but would be ranked 6 and 6a (spot 7 in the ranking) the average is returned
(or 6.5).
13
Grades were assigned based on the following: Rank 1-4 — A, Rank 4.5-6 — A-, Rank 6.5-9 —B+, Rank 9.5-12 —
B, Rank 13.5-15 — B-, Rank 15.5-20 — C+, Rank 20.5-33 —C, Rank 33.5-38 — C-, Rank 38.5-41 —D+, Rank 41.5-
44 — D, Rank 44.5-47 — D-, Rank 47.5-51 — F. The District of Columbia data is incomplete on many metrics but
was included where possible.

5
Rhode Island and Comparative Regional Results
Table 1.1 shows that Rhode Island’s rank and corresponding letter grade on each of the eight
indices of regional innovation is, as expected, mixed. Rhode Island is above average on the Ideas
and the Human Capital Indices; average on the Prosperity and Quality of Life Indices; and below
average on the Economic Capital, Business Environment, and Healthcare Indices.
Table 1.1: Rhode Island and Grade on Regional Innovation Sub-Indices
Innovation Index Rank Grade
Human Capital 14 B-
Economic Capital 45 D-
Business Environment 49 F
Energy 1 A
Quality of Life 28.5 C
Healthcare 9 B+
Ideas 6.5 B+
Prosperity 26 C
Source: Author
In the 1950s, the Department of Commerce looked at the regional breakdown used in federal
data and sought to build regions based on statistical similarities rather than historical connections.14
While the Census Bureau still uses the other, more traditional regional breakdown, other data
sources including the Bureau of Economic Analysis use the more statistically valid but less
common Department of Commerce alignment. For this study, the Department of
Commerce/Bureau of Economic Analysis regions are used because of the connection to the energy
data discussed by Dr. Basu in Part 2 below. Only two states in the nine state Northeast Region,
Maine and New Jersey fare worse than Rhode Island on the Regional Innovation Composite Index.
As Table 1.2 shows, Rhode Island has a Regional Innovation Index of 22.38 which ranks 20th
14
U.S. Census Bureau, Geographic Areas Reference Manual, (Washington, D.C.: U.S. Government Printing Office,
1994), 6-18-6-19.

6
nationally with a grade of C+. Rhode Island can find several positive forces at work in these
regional rankings. Rhode Island ranks first nationally in the Energy Index which is a function of
consumption, cost, and environmental impact. However, the portrait that the index paints is only
a singular snapshot. The longer trends are discussed in much more detail in Part 2 below. The
Human Capital Index shows that all Northeast and Mideast Region states are in the top twenty
nationally. While Rhode Island is only fifth best in the Northeast Region, it is fourteenth nationally.
Equally important, and related, on the Ideas Index, Rhode Island is fourth in the Northeast Region
and tied for sixth nationally. The Human Capital and Ideas Indices are related in that higher levels
of education, key metrics in the Human Capital Index, are needed to stimulate research and
development, key metrics in the Ideas Index. No state in the Northeast Region fares particularly
well on the Business Environment Dimension. In both regions under study here, only Delaware in
the Mideast Region ranks in the top 20 nationally. This is one area that Rhode Island could reform
aggressively to outcompete its neighbors. Dr. Mohan will explore this more fully in Part 3.

Table 1.2: Regional Innovation Composite for Northeast Region and Mideast Region States
State Name
Human
Capital
Index
Economic
Capital
Index
Business
Environment
Index
Energy
Index
Quality
of Life
Index
Healthcare
Index
Ideas
Index
Prosperity
Index
Regional
Innovation Index
Rank2014
Grade2014
Rank2014
Grade2014
Rank2014
Grade2014
Rank2014
Grade2014
Rank2014
Grade2014
Rank2014
Grade2014
Rank2014
Grade2014
Rank2014
Grade2014
Index
(AverageRank)
Rank2014
Grade2014
Massachusetts 2 A 5 A- 29.5 C 6 A- 3 A 2 A 1 A 5 A- 6.69 1.0 A
New Hampshire 5 A- 40 D+ 32 C 9.5 B 9.5 B 2 A 3 A 3 A 13.00 3.0 A
Connecticut 1 A 31 C 46 D- 4.5 A- 9.5 B 6 A- 2 A 16 C+ 14.50 5.0 A-
New York 8 B+ 1.5 A 43 D 4.5 A- 21.5 C 19 C+ 6.5 B+ 31 C 16.88 8.0 B+
Maryland 3 A 35 C- 41 D+ 15 B- 15.5 C+ 17 C+ 10.5 B 12 B 18.63 11.0 B
Vermont 7 B+ 33 C 47 D- 7 B+ 12 B 2 A 13 B 36 C- 19.63 12.0 B
Delaware 10 B 44 D 16 C+ 19 C+ 41 D+ 10 B 15.5 C+ 10 B 20.69 15.0 B-
DC 33 C 26 C * * 3 A * * 21 C 15.5 C+ 28 C 21.08 17.0 C+
Pennsylvania 18.5 C+ 21.5 C 36 C- 20 C+ 19 C+ 22 C 17 C+ 21 C 21.88 19.0 C+
Rhode Island 14 B- 45 D- 49 F 1 A 28.5 C 9 B+ 6.5 B+ 26 C 22.38 20.0 C+
New Jersey 6 A- 21.5 C 50 F 26 C 17 C+ 15 B- 28 C 23 C 23.31 24.0 C
Maine 16 C+ 47 D- 44 D 18 C+ 19 C+ 7 B+ 48 F 41 D+ 30.00 36.0 C-
Source: Author Calculations Note: Regions are coded here as follows: Northeast Region and Mideast Region.

8
Component Index Results for the Regional Innovation Index
The “Guidebook” served as a model for creating the Regional Innovation Index not a
blueprint. Several of the metrics discussed in Appendix A of “Measuring Regional Innovation”
overlap one another. Moreover, there are several key metrics that are not included in the metrics
provided in “Measuring Regional Innovation.” The author has tried to create as comprehensive an
Index as possible with publicly available data. Because of cost constraints, no private data was
purchased for this project.
Human Capital Index
Human capital is the “accumulated stock of skills and talents, and it manifests itself in the
educated and skilled workforce in the region.”15
Education is the central element of human
capital.16
Adeyemi Ogunade argues that human capital development is essential economic growth
in the developing world. 17
The argument does not just apply to the developing world, however.
Any state that wants to increase its prominence in the regional, national, or global economic system
must develop human capital. The Human Capital Index seeks to measure quantify the level of
education in each state by looking at graduation rates for both high school and university.
Additionally, the percent of the population that has a high school diploma or higher and a
bachelor’s degree or higher are included along with the number of residents with a doctorate.
Equally important, are the costs of obtaining those degrees including public financing at both K-
15
Vijay K. Mathur, “Human Capital-Based Strategy for Regional Economic Development,” Economic Development
Quarterly 13, No. 3 (1999), 205.
16
See, for example, Catherine M. Sleezer, Gary J. Conti, and Richard E. Nolan, “Comparing CPE and HRD Programs:
Definition, Theoretical Foundations, Outcomes, and Measures of Quality,” Advances in Developing Human Resources
6, No. 1 (2003), 20-34.
17
Adeyemi O. Ogunade, “Human Capital Investment in the Developing World: An Analysis of Praxis,” Kingston,
Rhode Island: Schmidt Labor Research Center Seminar Paper Series, University of Rhode Island (2011),
http://www.uri.edu/research/lrc/research/papers/Ogunade_Workforce_Development.pdf.

9
12 level and university levels. Higher education funding, is even more critical in the advanced
economy of the twenty-first century because many more employment opportunities require such
degrees. To that end, the funding trends for higher education over previous years is also included.
Private school data is not included because there are simply too many institutions to gather data
effectively. Finally, twenty first century skills include computer proficiency so the metrics of
households with computer and households with broadband are also included.
Rhode Island fares well on many of the metrics in this index (Table 1.3). However, there is
room for improvement especially in the areas of high school graduation rate and overall higher
education funding. Understandably, tight budgets in Rhode Island have made investments in
education difficult but Rhode Island has increased funding over a five year period at a rate greater
than most states. This trend should continue and, in fact, should increase over the next several
years. Improving human capital will only improve Rhode Island’s chances of developing a rich,
vibrant, and productive economic environment. Employers want a skilled and well educated
workforce. Rhode Island does well here but can continue to improve. For once, the small size of
Rhode Island may be to its advantage because the money invested can have direct tangible benefits
over a smaller footprint.

Table 1.3: Human Capital Index and Metrics
State Name
HighSchoolGraduationRate
Rank
UniversityGraduationRate
Rank
AmountofDebtPostCollege
Rank
PercentageofGraduateswith
DebtRank
Ph.D.Graduates2012/Capita
Rank
PercentHSGraduateorHigher
Rank
PercentBachelor'sDegreeor
HigherRank
K12EducationExpenditure(per
Pupil)Rank
HigherEdAppropriationsper
FTEFY2013IndextoUS
AverageRank
HigherEdAppropriationsper
FTEFiveYear%Change(FY08-
FY13)Rank
PercentofHouseholdswith
ComputerRank
HouseholdsWithaBroadband
InternetSubscriptionRank
HumanCapitalIndex
HumanCapitalIndexRank2014
HumanCapitalGrade2014
Connecticut 15.0 7.0 6.0 16.0 12.0 21.0 5.0 5.0 11.0 31.0 19.0 11.0 13.25 1.0 A
Massachusetts 15.0 14.5 14.0 13.0 2.0 19.0 2.0 8.0 25.0 32.0 14.0 3.0 13.46 2.0 A
Maryland 15.0 6.0 26.0 28.0 6.0 25.0 4.0 11.0 13.0 18.0 8.0 7.0 13.92 3.0 A
New Hampshire 6.5 3.0 1.0 1.0 42.0 2.0 9.0 12.0 50.0 50.0 4.0 1.0 15.13 5.0 A-
New Jersey 15.0 9.0 18.0 4.0 39.0 28.0 6.0 4.0 27.0 30.0 13.0 5.0 16.50 6.0 A-
Vermont 2.5 4.0 22.0 16.0 46.0 11.0 8.0 6.0 49.0 8.0 16.0 18.0 17.21 7.0 B+
New York 32.0 13.0 25.0 26.0 9.0 39.0 10.0 1.0 6.0 6.0 25.0 19.0 17.58 8.0 B+
Delaware 27.5 1.0 2.0 21.0 5.0 30.0 20.0 10.0 34.0 25.0 18.0 20.0 17.79 10.0 B
Rhode Island 32.0 18.0 4.0 9.0 3.0 36.0 13.0 9.0 43.0 28.0 29.0 14.0 19.83 14.0 B-
Maine 10.5 26.0 7.0 16.0 51.0 5.0 26.0 14.0 22.0 9.0 28.0 29.0 20.29 16.0 C+
Pennsylvania 15.0 10.0 3.0 3.0 11.0 24.0 23.0 13.0 46.0 36.0 41.0 31.0 21.33 18.5 C+
District of Columbia 51.0 51.0 47.0 44.0 1.0 17.0 1.0 2.0 51.0 * 20.0 24.0 28.09 33.0 C
Sources: Author Calculations from Department of Education, Chronicle of Higher Education, American Community Survey 2013, Project on Student Debt, State Higher Education
Executive Officers Association. Note: Regions are coded here as follows: Northeast Region and Mideast Region.

11
Economic Capital Index
In a classic article challenging the prevailing assumptions of the late 1960s development
literature, Sayre P. Schatz argued that capital accumulation was the necessary condition to
economic development.18
Economic capital refers to the financing available to undertake projects
to increase productivity. This index looks at the totality of investments (through five and ten year
venture capital investments). Admittedly, this is not the entirety of capital accumulation in a given
state but it does serve as a nice connection between the capital markets and the economic engine
of a given state. More investment generally means more economic activity. This index also
includes labor force productivity, exports, and export growth. While at first glance, these would
seem to be an ill fit for an index of economic capital, all three metrics serve to highlight how the
economic might of individual citizens (productivity) along with the state’s economic might
(exports). Capital accumulation and economic productivity are intertwined. Including both
dimensions here made the most sense.
As Table 1.4 shows, Rhode Island does not do particularly well in this area for many reasons.
First, much of the venture capital available in the market goes to only a handful of states. As Rhode
Island develops leading industries for the twenty first century, more of that venture capital could
come here and further boost the economy. Second, Rhode Island is a small state geographically
with scarcely more than one million people. One would hope that the population is highly
productive. Rhode Island, however, is in the bottom quartile nationally and fourth in the Northeast
Region. This is a metric that must improve for Rhode Island to develop to its full potential. Finally,
as a small state, Rhode Island cannot be expected to have a high level of exports unless the
18
Sayre P. Schatz, “The Role of Capital Accumulation in Economic Development,” Journal of Development Studies
5, No. 1 (1968).

12
economy were structured to produce those exports. Historically, Rhode Island produced textiles or
jewelry and this may have led to higher exports but neither are viable for the future. High tech or
green technology exports may be better suited to the future but Rhode Island may never compete
with larger manufacturing states for exports.
Table 1.4: Economic Capital Index and Metrics
State Name
5YearVCFundCommitments,
2009-2013(PercentofTotal)Rank
10YearVCFundCommitments,
2004-2013(PercentofTotal)Rank
LaborForceProductivityCompound
AnnualizedGrowth,2009-2013Rank
2013TotalExportsRank
GrowthTotalExports,
2012-2013Rank
Economic
Capital
Index
Economic
Capital
Index
Rank
2014
Economic
Capital
Grade
2014
New York 3.0 2.0 17.0 3.0 5.0 6.00 1.5 A
Massachusetts 2.0 3.0 11.0 17.0 11.0 8.80 5.0 A-
New Jersey 16.0 20.0 32.0 9.0 39.0 23.20 21.5 C
Pennsylvania 12.0 14.0 30.0 11.0 49.0 23.20 21.5 C
District of Columbia 28.0 29.0 * 36.0 12.0 26.25 26.0 C
Connecticut 33.0 34.0 42.0 21.0 14.0 28.80 31.0 C
Vermont 31.5 35.0 8.0 42.0 32.0 29.70 33.0 C
Maryland 35.0 37.0 29.0 30.0 33.0 32.80 35.0 C-
New Hampshire 45.0 43.0 25.0 41.0 18.0 34.40 40.0 D+
Delaware 45.0 49.0 47.0 38.0 17.0 39.20 44.0 D
Rhode Island 37.0 38.0 39.0 47.0 37.0 39.60 45.0 D-
Maine 45.0 40.0 45.0 45.0 28.0 40.60 47.0 D-
Source: Author Calculations from 2014 National Venture Capital Association Yearbook, HBS/US Economic Development
Agency Cluster Mapping Project, US Census. Note: Regions are coded here as follows: Northeast Region and Mideast Region.

13
Business Environment Index
Table 1.5: Business Environment Index and Metrics
State Name
OverallTaxBurden
Rank
ForbesOverallCostof
DoingBusinessRank
C2ER
CostofLivingIndex
Q32014Rank
Business
Environment
Index
Business
Environment
Index Rank
2014
Business
Environment
Grade 2014
Delaware 13.0 11.0 36.5 20.17 16.0 C+
Massachusetts 25.0 13.0 43.0 27.00 29.5 C
New Hampshire 8.0 35.0 39.5 27.50 32.0 C
Pennsylvania 24.0 30.0 33.5 29.17 36.0 C-
Maryland 41.0 20.0 39.5 33.50 41.0 D+
New York 50.0 17.0 46.0 37.67 43.0 D
Maine 29.0 49.0 38.0 38.67 44.0 D
Connecticut 42.0 36.0 50.0 42.67 46.0 D-
Vermont 45.0 43.0 41.0 43.00 47.0 D-
Rhode Island 46.0 46.0 42.0 44.67 49.0 F
New Jersey 49.0 41.0 45.0 45.00 50.0 F
District of Columbia * * 49.0 49.00 * *
Source: Author Calculations from State Business Tax Climate, Tax Foundation, Forbes Magazine, and Council for Community
& Economic Research (C2ER). Note: Regions are coded here as follows: Northeast Region and Mideast Region.
The Business Environment Index (Table 1.5) might also be referred to as the cost of doing
business index. Businesses seek to minimize costs for the firm as well as for their employees.
Taxes are a fixed cost of doing business and the overall tax burden, which takes into account both
taxes for firms as well as taxes for individuals, is a good metric to measure how tax friendly a state
is. Taxes are necessary to provide services but businesses (and the individuals they employ) want,
and expect, efficiency in taxation policy. The Forbes Magazine Cost of Doing Business Rank is a
respected measure. Finally, the Council for Community and Economic Research calculates a cost

14
of living index. This comprehensive look at how much it costs to live in a given state is important
because states that are more cost effective are more desirable for employees. A lower cost of living
means that the money that employees earn provides them with a higher quality of life. Dr. Mohan
will examine the cost of doing business using these, and other metrics, in Part 3 below.
Energy Index
Energy is critical to economic development. However, the environmental and financial costs
of traditional energy sources will threaten any such development. The Energy Index looks at a
single point in time to show how well a state manages its energy needs including the environmental
costs of that energy. The Energy Index is a function of energy consumption per capita across
residential, commercial, industrial, and transportation sectors as well as energy expenditures per
capita. Per capita measures are critical to account for the relative size of states. These measures
gauge how much energy a state uses and how much it pays for it. Additionally, CO2 emissions are
used as a measure of the environmental impact of energy policy in a state. The index does not
include a production variable because so many states have little or no energy production (including
RI). However, as states innovate more in the area of green energy to meet their energy needs, a
production variable will be necessary.

Table 1.6: Energy Index and Metrics
State Name
ResidentialSectorEnergy
ConsumptionperCapita,2012,
MillionBTURank
CommercialSectorEnergy
MillionBTURank
IndustrialSectorEnergy
MillionBTURank
TransportationSectorEnergy
MillionBTURank
TotalEnergyConsumptionper
Capita,2012,MillionBTURank
TotalEnergyExpendituresper
Capita,2012,$Rank
TotalCO2Emissions,2011,
MillionMetricTonsRank
Energy
Index
Energy
Index
Rank
2014
Energy
Index
Grade
2014
Rhode Island 8.0 5.0 3.0 3.0 1.0 5.0 3.0 4.00 1.0 A
District of Columbia 4.0 51.0 1.0 1.0 16.0 2.0 1.0 10.86 3.0 A
Connecticut 20.0 14.0 4.0 4.0 5.0 19.0 11.0 11.00 4.5 A-
New York 3.0 24.0 2.0 2.0 2.0 1.0 43.0 11.00 4.5 A-
Massachusetts 14.5 4.0 11.0 5.0 7.0 14.0 22.0 11.07 6.0 A-
Vermont 11.0 2.0 8.0 19.0 6.0 36.0 2.0 12.00 7.0 B+
New Hampshire 14.5 12.0 7.0 15.0 9.5 29.0 7.0 13.43 9.5 B
Maryland 24.0 42.5 5.0 11.0 12.0 13.0 19.0 18.07 15.0 B-
Maine 12.0 7.0 24.0 25.0 22.0 41.0 8.0 19.86 18.0 C+
Delaware 22.5 37.0 28.0 7.0 24.5 26.0 4.0 21.29 19.0 C+
Pennsylvania 22.5 8.0 25.0 10.0 21.0 21.0 49.0 22.36 20.0 C+
New Jersey 16.0 41.0 9.0 35.0 15.0 28.0 36.0 25.71 26.0 C
Source: Author Calculations from State Energy Data System (SEDS) U.S. Energy Information Administration's (EIA). Note: Regions are coded here as follows:
Northeast Region and Mideast Region.

16
Using the most current data, from 2012, Table 1.6 shows that Rhode Island’s ranks no worse
than eighth on any of the consumption metrics and first for total consumption. Rhode Islanders’
can be commended for their frugal use of energy. Rhode Island ranks fifth on energy expenses and
third on CO2 emissions. Overall, Rhode Island is ranked first nationally in the Energy Index. As
will be clearer in Part 2, this snapshot is somewhat misleading. In 2012, Rhode Island was
outstanding on energy variables but the trends, particularly in greenhouse gas emissions are not as
good. The key to Rhode Island remaining at the top of the Energy Index is to develop a
comprehensive energy plan that continues to build on the success of 2012. Rhode Island’s
investment in Ocean State Wind is a promising start in this area.
Quality of Life Index
Quality of life is how well citizens live in their community and how residents perceive of
how well they live. In essence, quality of life reflects how residents think about living in a given
state. Obviously, quality of life is a key determinant of why residents stay and more importantly
why others might choose to move into a new state. The metrics in the Quality of Life Index (Table
1.7) include two distinct measures of the quality of life in a given state. Gallup-Healthways is a
national survey that seeks to gauge citizen well-being on five dimensions: Purpose, Social,
Financial, Community, and Physical. According to Gallup-Healthways, the five dimensions are
defined as follows:
Purpose: Liking what you do each day and being motivated to achieve your goals
Social: Having supportive relationships and love in your life
Financial: Managing your economic life to reduce stress and increase security
Community: Liking where you live, feeling safe and having pride in your
community

17
Physical: Having good health and enough energy to get things done daily19
These are combined to create an overall index score which is then ranked. It is the ranking
that is reported here. The Forbes Magazine Quality of Life Rank is part of the magazine’s larger
project on business environment. Here only the Quality of Life ranking is used. Forbes’ Quality
of Life metric uses poverty, crime rates, cost of living, school test performance, health, cultural
and recreational opportunities, the weather (using mean temperature), and the number of top
colleges in the state.20
Table 1.7: Quality of Life Index and Metrics
State Name
Gallup-Healthways
Well-Being Index
Overall Rank
Forbes
Quality of
Life Rank
Quality of
Life Index
Quality of
Life Index
Rank 2014
Quality of
Life Grade
2014
Massachusetts 17.0 1.0 9.00 3.0 A
Connecticut 24.0 3.0 13.50 9.5 B
New Hampshire 21.0 6.0 13.50 9.5 B
Vermont 13.0 18.0 15.50 12.0 B
Maryland 29.0 8.0 18.50 15.5 C+
New Jersey 34.0 4.0 19.00 17.0 C+
Maine 15.0 27.0 21.00 19.0 C+
Pennsylvania 35.0 7.0 21.00 19.0 C+
New York 33.0 10.0 21.50 21.5 C
Rhode Island 37.0 20.0 28.50 28.5 C
Delaware 38.0 36.0 37.00 41.0 D+
District of Columbia * * * * *
Source: Author Calculations from Gallup/Healthways and Forbes Magazine Note: Regions are coded here as follows: Northeast Region
and Mideast Region.
Rhode Island’s Quality of Life Index is at the low end of average. Looking deeper at the
Gallup-Healthways rankings, Rhode Island is in the bottom six on Purpose (49th), Social (50th),
19
Gallup-Healthways, “State of American Well-Being: 2014 State Well-Being Rankings,” Gallup-Healthways (2015),
http://www.well-beingindex.com/subscribe.
20
Kurt Badenhausen, “Ranking The Best States For Business 2014: Behind The Numbers,” Forbes Magazine
(November 12, 2014), http://www.forbes.com/sites/kurtbadenhausen/2014/11/12/ranking-the-best-states-for-
business-2014-behind-the-numbers/

18
and Community (45th). Both Purpose and Community Rankings are surprises because Providence
routinely is named to “best of” lists. Of course, Rhode Island is much more than just Providence
but external perceptions of the capital city have not translated to perceptions locally. Both of these
can be changed by expanding economic opportunities and options for social and community
interaction. With a better economy and more to do, citizen satisfaction is sure to improve.
Similarly, on the Financial dimension (27th) can be improved as well. Rhode Island’s Physical
dimension rank of fourteen is belied by the relative high costs of healthcare (see below). Rhode
Islanders clearly believe that their health is good and that services are available to maintain that.
The Forbes Ranking places Rhode Island in the top twenty nationally.21
Healthcare Index
Healthcare quality and healthcare costs are equally important dimensions of the quality of
life and affordability of a state. Only one metric was used to create a Healthcare Index. Fortunately,
the Commonwealth Fund has created as comprehensive a look at overall health within the states
as possible. The report “assesses states on 42 indicators of health care access, quality, costs, and
outcomes over the 2007–2012 period, which includes the Great Recession and precedes the major
coverage expansions of the Affordable Care Act.”22
As the authors of the report indicate the
performance of the states represents a very muddled picture nationally. States are extremely
unequal in their access to good, reliable, and affordable healthcare.23
Fortunately, as shown in
Table 1.8, the Northeast is in a much better position regionally than any other region. As the
authors of the report suggest, the metrics used to calculate the overall health system performance
21
See Gallup-Healthways, “State of American Well-Being,” or data files associated with the project.
22
David Radley, Douglas McCarthy, Jacob Lippa, Susan L. Hayes, and Cathy Schoen, Aiming Higher: Results from
a Scorecard on State Health System Performance, 2014, The Commonwealth Fund (May 2014), abstract.
23
Ibid., p. 7.

19
ranking can and should be used as “attainable benchmarks.”24
The report uses five broad
dimensions (Access and Affordability, Prevention and Treatment, Avoidable Hospital Use and
Cost, Healthy Lives, and Equity) to create the ranking system. Rhode Island is in the top quartile
on four of the five dimensions and in the second quartile on the Avoidable Hospital Use and Cost
dimension.25
Rhode Island should be proud of its healthcare system and should use this data as a
means to promote itself. Moreover, healthcare is one industry that is expanding. According to the
Bureau of Labor Statistics, healthcare jobs are among the fastest growing job sectors in the
economy at 2.6% from 2012-2022.26
Rhode Island should continue to use its high quality
healthcare system as a mechanism for economic growth.27
24
Ibid., 7
25
Ibid., 12.
26
Richard Henderson, “Industry employment and output projections to 2022,” Monthly Labor Review (December
2013), http://www.bls.gov/opub/mlr/2013/article/industry-employment-and-output-projections-to-2022-1.htm.
27
Adeeb Mahmud and Marcie Parkhurst. “The Role of the Health Care Sector in Expanding Economic Opportunity.”
Cambridge, Massachusetts, (2007), http://www.ksg.harvard.edu/m-rcbg/CSRI/publications/
report_21_EO%20Health%20Care%20Final.pdf.

20
Table 1.8: Health Cost Index and Metrics
State Name
Health
System
Performance
Overall Rank
Healthcare
Rank 2014
Healthcare
Grade 2014
Massachusetts 2.0 2.0 A
New Hampshire 2.0 2.0 A
Vermont 2.0 3.0 A
Connecticut 6.0 6.0 A-
Maine 7.0 7.0 B+
Rhode Island 9.0 9.0 B+
Delaware 10.0 10.0 B
New Jersey 15.0 15.0 C+
Maryland 17.0 17.0 C+
New York 19.0 19.0 C+
District of Columbia 21.0 21.0 C
Pennsylvania 22.0 22.0 C
Source: Commonwealth Fund. Note: This is the only Index with a single metric so the
Rank mirrors the singular metric. All other Indices were calculated and the Rank Average
was used. Note: Regions are coded here as follows: Northeast Region and Mideast
Region.
Ideas Index
If a state wants to build an economy for the rapidly changing new global environment, it is
critical that the state seek to operate at the forefront of emerging technology. Bruce Katz and Julie
Wagner suggest that innovation districts, “are geographic areas where leading-edge anchor
institutions and companies cluster and connect with start-ups, business incubators, and
accelerators. They are also physically compact, transit-accessible, and technically-wired and offer
mixed-use housing, office, and retail.”28
Providence, and by extension, Rhode Island, has a unique
opportunity to develop such a regional hub with the opening of the former Interstate 195 land. The
proximity of the state’s universities to the land, easy accessibility, and open space for specific
28
Bruce Katz and Julie Wagner, “The Rise of Innovation Districts: A New Geography of Innovation in America,”
Washington, DC: Brookings Institute Metropolitan Policy Program, (May 2014), http://www.brookings.edu/
~/media/Programs/metro/Images/Innovation/InnovationDistricts1.pdf.

21
development cannot be overlooked. The Ideas Index (Table 1.9) is based on two metrics (patents
per 100,000 population and total research and development spending per capita) as a means to
gauge how well a state is able to generate innovate new opportunities. The Ideas Index is built
around the generation of ideas as a function of population size so smaller states, like Rhode Island,
that are innovate can score well here. The Northeast region has five of the top ten states nationally,
including Rhode Island. This promising result for Rhode Island coupled with the relatively high
score on the Human Capital Index should be a cornerstone of any development strategy for the
state. Rhode Island must learn to leverage its high quality universities and innovative corporations
in areas that reflect a new global economy.
Table 1.9: Ideas Index and Metrics
State Name
Total Patents,
2013 (per
100,000
population)
Rank
Total R&D
Spending in All
Fields, 2013
(per capita)
Rank
Ideas
Index
Ideas
Index
Rank
2014
Ideas
Grade
2014
Massachusetts 2.0 3.0 2.50 1.0 A
Connecticut 8.0 6.0 7.00 2.0 A
New Hampshire 7.0 9.0 8.00 3.0 A
New York 15.0 8.0 11.50 6.5 B+
Rhode Island 19.0 4.0 11.50 6.5 B+
Maryland 27.0 2.0 14.50 10.5 B
Vermont 5.0 26.0 15.50 13.0 B
Delaware 13.0 21.0 17.00 15.5 C+
District of Columbia 33.0 1.0 17.00 15.5 C+
Pennsylvania 25.0 10.0 17.50 17.0 C+
New Jersey 11.0 42.0 26.50 28.0 C
Maine 39.0 50.0 44.50 48.0 F
Source: Author Calculations from US Patent and Trademark Office and WebCASPAR National Science Foundation. Note:
Regions are coded here as follows: Northeast Region and Mideast Region.

22
Prosperity Index
Prosperity, or the financial success of citizens, is essential to building a strong state economy.
There are three broad dimensions that make up the Prosperity Index: Employment factors, Housing
Burden factors, and Income factors. States must have full employment so that all citizens can enjoy
the benefits of the economy. The Prosperity Index (Table 1.10) uses three distinct measures of
employment. The unemployment rate is the most basic measure of the employment situation in a
state. However, two other measures are also important. The first, the over year change in
unemployment, defined as the percent that the unemployment rate changed over the course of a
given year, measures how well a state is doing at lowering its unemployment rate. The second, the
over year change in non-farm employment (not seasonally adjusted) is a measure of the change in
the total employment of a state. More broadly, this can be seen as a suitable measure of how well
a state’s economy is growing by adding new jobs to the economy over the course of a given year.
Rhode Island does poorly on the unemployment rate but is the second best at lowering that rate.
The state is in the middle in terms of growing the overall economy.
The Housing Burden reflects the ability of residents to pay for their home (whether
ownership or rental). The standard for housing affordability in the United States is that the cost of
the home must not exceed 30% of a family budget. Anything over that would mean that the family
is housing burdened. The Northeast region does poorly on this metric generally. Rhode Island is
46th
for homeowner burden and 39th
for rental burden. HousingWorksRI is working on housing
affordability in Rhode Island and their efforts should be expanded.
Income factors are measured in four ways. By looking at individual, household, and family
income, the Index includes an extremely broad view of income. Individual income looks at the
personal income per capita for each state. Household income looks at the combination of two

23
income earners with comingled resourced. Family income incorporates the income of all members
of a family over the age of fifteen. Additionally, the poverty level looks at the bottom end of the
income scale. Holistically, these four measures encapsulate the entirety of the financial income
portrait of a state. The income picture in Rhode Island is unremarkable. Regionally, Rhode Island
ranks sixth on personal income and household income, fifth on family income, and tied for seventh
on poverty. Rhode Island family income shows that many Rhode Island families need the income
of all members of a household to make ends meet. Rhode Island’s lower than average incomes for
the region may make the state more attractive to business who can save on labor costs. This comes
at a price of quality of life and other measures of prosperity.

Table 1.10: Prosperity Index and Metrics
State Name
UnemploymentRate,
December2014Rank
Unemployment,
OvertheYearChange,
Dec.2013-Dec.2014Rank
TotalNon-FarmEmployment†
OvertheYearChange,
Dec.2013-Dec.2014(Percent)Rank
CostBurdenedHomeowners(%)
Rank
CostBurdenedRenters(%)Rank
PersonalIncomepercapita,
2013Rank
MedianHouseholdIncome,
2013Rank
MedianFamilyIncome,2013Rank
PovertyRate,2013Rank
Prosperity
Index
Prosperity
Index
Rank
2014
Prosperity
Grade
2014
New Hampshire 8.0 16.5 33.0 45.0 17.0 9.0 8.0 7.0 1.0 16.06 3.0 A
Massachusetts 24.5 11.0 21.0 42.0 29.0 3.0 6.0 4.0 8.0 16.50 5.0 A-
Delaware 21.5 27.0 8.0 34.0 33.0 23.0 11.0 14.0 11.0 20.28 10.0 B
Maryland 24.5 33.0 48.0 38.0 36.0 6.0 1.0 1.0 2.0 21.06 12.0 B
Connecticut 39.0 23.0 27.0 48.0 44.0 2.0 4.0 3.0 4.0 21.56 16.0 C+
Pennsylvania 18.0 7.5 41.0 28.0 31.0 19.0 23.0 21.5 19.0 23.11 21.0 C
New Jersey 34.5 23.0 49.0 51.0 46.0 4.0 2.0 2.0 5.0 24.06 23.0 C
Rhode Island 45.5 2.0 25.0 46.0 39.0 16.0 19.0 11.0 21.5 25.00 26.0 C
District of Columbia 50.0 42.5 18.0 35.0 23.0 1.0 7.0 8.0 45.5 25.56 28.0 C
New York 30.5 16.5 36.0 47.0 47.0 5.0 16.0 17.0 28.0 27.00 31.0 C
Vermont 13.0 48.5 34.0 44.0 48.0 21.0 20.0 20.0 12.0 28.94 36.0 C-
Maine 24.5 25.5 44.0 36.0 42.0 32.0 33.0 31.0 21.5 32.17 41.0 D+
Source: Author Calculations from Bureau of Labor Statistics, American Community Survey/Housing Works RI, and Bureau of Economic Affairs. †
Non-Seasonally Adjusted. Note:
Regions are coded here as follows: Northeast Region and Mideast Region.

Combined, these three dimensions show that Rhode Island is unremarkable. Rhode Island
ranks 26th
nationally and 6th
regionally with a grade of C. Rhode Island’s unemployment for a time
was the highest in the nation but that is improving dramatically over the last year. Rhode Island
must continue to grow the economy and increase the job opportunities available for her citizens.
Rhode Island is expensive for homeowners and renters alike and the state must do more to make
living in the state more affordable. One way to do that is to increase incomes, of course, and Rhode
Island lags behind her peers in this area. However, raising incomes too high too fast will cause
inflation and may make Rhode Island less attractive to business. There is a razor thin margin to
accomplish all of these tasks.
Conclusions and Recommendations
Rhode Island is not in as perilous shape as many pundits around the state would have us
believe. The positives are a relatively well-educated and competent workforce (Human Capital
Index), a sound healthcare system (Healthcare Index), and a dynamic idea oriented population
(Ideas Index). On each of these measures, Rhode Island can be proud of the accomplishments and
use these as building blocks for the future. It is imperative that leaders in Rhode Island, both
political and business, capitalize on these strengths to market to industry to stay in (or relocate to)
Rhode Island. At the same time, however, Rhode Island is not seen as business friendly (Business
Environment Index) and lacks a rich base of investments (Economic Capital Index). These are the
two areas of this report that should generate the most discussion within policy and business circles
in the state. To compete, Rhode Island must reform its business environment to be more compatible
with long-term economic growth. The final two Indices (Quality of Life and Prosperity) show
Rhode Island to be average. Improving perceptions of Rhode Island’s quality of life will go hand
in hand with improving economic prosperity. While money does not buy happiness, for too many

26
people, the lack of money means that they cannot enjoy the many benefits of the state which
negatively impacts quality of life.
Recommendations
Recommendation 1: Rhode Island must build on the success of its education system by
increasing investment in teachers, infrastructure, and curriculum. The state should develop a clear
plan to capitalize on the existing educated workforce and should actively seek to expand that
educated workforce to be more inclusive. Rhode Island has been effective at generating ideas and
the state should encourage the state’s universities to expand their efforts in this area by creating a
statewide network to further develop these ideas, particularly in Science, Technology,
Engineering, and Math (STEM), particularly in healthcare and green energy technology.
Recommendation 2: Rhode Island should create special innovation districts with
appropriate business development tools and infrastructure to foster economic development. Two
innovation districts in the former Route 195 land and in Quonset should be the initial sites
developed with future sites located in other areas of the state. These innovation districts should
lead the state, and the country, to developing ideas and products for the future. Again, green energy
and healthcare are logical areas for growth.
Recommendation 3: Rhode Island must capitalize on its high quality and affordable
healthcare system by making Rhode Island a center of medical care in the region. Rather than
duplicating or competing with the efforts of nearby centers of excellence in Boston or New York,
Rhode Island should seek to develop its own specialties. This should be combined with expansion
of the economic development opportunities through research. By working with the leading
healthcare providers, Lifespan, Care New England, Brown University Medical School, Rhode
Island must work to continue to expand healthcare as an economic development engine.

27
Recommendation 4: Rhode Island must improve quality of life and prosperity in Rhode
Island by making housing more affordable, increasing employment, increasing wages, and
expanding opportunities for all Rhode Islanders. Rhode Island could develop and implement
specifically targeted tax credits to encourage entrepreneurs and specific industries, particularly in
special innovation districts.
Recommendation 5: Rhode Island must improve infrastructure throughout the state
including building transit hubs that serve high growth communities or communities with large
underserved populations.
Recommendation 6: Rhode Island must streamline governmental services, particularly
those serving businesses, to minimize delay, expense, and confusion about regulations.
Comprehensive regulatory reform should also be done to streamline the process for business and
industry to invest in the state.
Recommendation 7: Rhode Island government must increase its accountability and
openness to the public. A comprehensive ethics reform package should be implemented to
demonstrate the responsibility of government officials and to create an open and dynamic state
government.
Recommendation 8: Rhode expand educational opportunities to all citizens. Consolidation
of schools to reduce costs and increase efficiency should be considered, subject to local community
wishes, of course. The state should increase funding to schools at all levels through a vibrant
statewide funding formula tied to the changing nature of the economy, particularly in STEM. The
state should consider building a dedicated statewide STEM magnet school to develop capable
workers for the new economy. The state should actively seek to retain college graduates in Rhode
Island through statewide internship or other co-curricular programs with business and industry.

28
2: Energy (Suchandra Basu, Principal Investigator)
Abundant, cheap, fossil fuel sources of energy have been a key driver of economic growth
since the industrial revolution. Production using traditional sources of energy release sulfur
dioxide, nitrous oxides, particulates, carbon dioxide and other harmful pollutants that damage the
environment and impact public health. The most concerning of these impacts is one of
accumulating stocks of CO2 in the earth’s atmosphere causing global warming and climate change,
now widely considered the most difficult policy challenge of our time. Finding sustainable, low
carbon intensive solutions is crucial for fuelling economic growth in the near and medium term to
reign in further warming. An emphasis on climate change adaptation in the medium to long term
will also be crucial in planning for and dealing with the myriad consequences of global warming
such as rising sea levels, coastal flooding, loss of biodiversity, temperature extremes, loss of
certain industries etc.
To be competitive in this scenario, Rhode Island, with other cities, states, regions and
countries must be a part of growing innovative solutions to reduce dependence on traditional
sources of energy. This segment applies a necessary long-term lens to understand the relationship
between economic growth, energy use, and carbon dioxide (CO2) emissions in the state using data
from 1990 to 2012. The goal is to appraise Rhode Island’s current standing on energy initiatives
compared to neighbors and explore potential new energy initiative options pertaining to the state’s
participation in the Regional Greenhouse Gas Initiative since 2009 (RGGI). RGGI is a multi-state
cap and trade CO2 budget program in the Eastern US. Thus Rhode Island is already a proactive
and early mover at the regional level on climate change policy. This report highlights where and
how the state can capitalize on its early mover advantage to become regionally and nationally
competitive.

29
What is a market based cap-and-trade program?
Several existing and proposed energy legislation/initiatives at the regional, national and
international levels, seek to regulate carbon dioxide emissions from the power sector by pricing
carbon emissions through market-based cap and trade programs.29
The market based cap and trade
program for pollution reduction has a long and proven track record of successfully reducing
targeted emissions at a significantly lower cost than traditional command and control pollution
abatement programs. A cap sets a limit on the amount of emissions, with the capped amount often
decreasing over time. Emitters are only allowed to release as much emissions as they have permits.
A single emission permit allows for the emission of one unit of the pollutant from a regulated
source issued by the federal or state regulatory authority. Permits are either allocated for free
amongst a group of emitters or sold at auction.30
The total number of permits does not exceed the
cap amount. Knowledge of current and future expected decrease in cap amounts allows affected
companies and industry the flexibility to plan ahead.
A cap and trade program has two elements that are central to establishing allowance value:
i. Free or auctioned allowances: The regulatory body can, and has in the past, distribute
the pollution allowances free. As such, setting an emissions cap inherently adds a
cost on the use of carbon creating value, whether or not the permit is initially
auctioned. Emitters are required to surrender one allowance for every unit of
emissions generated.
ii. Allowance trading: Allowances can then be bought and sold in a secondary market,
allowing emitters with lower costs of emissions reduction to capture the allowance
29
Valuing the cost of carbon use can also be achieved through other mechanisms such as a tax or a fee.
30
Based on a few different formulas, one of which is grandfathering based on a facility’s emissions in a base year.

30
value by selling part or all of their allowances. Allowance buyers are emitters for
whom emission reductions, at least in the short run, may be costlier than buying the
“rights” to pollute. Allowance holders may also choose to bank unused allowances
for future use, or sale, when caps get tighter and permit value higher.
Trading permits or allowances then establishes a market for allowances that assigns a value
to the social cost of the pollutant being controlled. The inherent flexibility in program design often
results in companies or industries innovating in order to reduce emissions and use fewer permits,
saving them money. The market environment creates an incentive for industries to invest in more
cost-effective and/or environmentally sustainable technologies. Having the option to buy the rights
to pollute also gives companies and industries additional options in operation, without changing
the overall level of emissions. The following provides a brief background on past and current
market based cap and trade programs operating at the state, regional, national and international
levels.
Historical Background, Program Examples and Outcomes
The US Acid Rain Program
The US Acid Rain Program was established under Title IV of the 1990 Clean Air Act
Amendments. This was the first national cap and trade program in the country that introduced a
system of allowance trading using market based incentives to reduce pollution. The program
mandates significant reductions in sulfur dioxide (SO2) and nitrogen oxides (NOx) emissions from
the power sector. Sulfur dioxide and nitrogen oxides are the primary precursors of acid rain as well
as fine particulate matter (PM2.5) that causes asthma and other lung diseases in vulnerable
population. The SO2 program sets a permanent cap on the total amount of SO2 that may be emitted

31
by electric generating units (EGUs) in the contiguous United States. The final 2010 sulfur dioxide
cap was set at 8.95 million tons, which is a level nearly one half of emissions from the power sector
in 1980.31
Nitrogen oxides reductions are achieved through a program which applies to a subset of
coal-fired electric generating units. 2010 NOx emissions are 27% lower from 1990 levels32
. An
updated cost benefit analysis of the Acid Rain Program calculated annualized program benefit in
2010 to be $100 billion, while annualized costs are estimated to be $3 billion. Most notably, the
estimated costs are less than half of the pre-program cost projections from 1990.33
European Union Emission Trading System (EU ETS)
The European Union Emissions Trading System (EU ETS) was the first in 2005, and still the
largest, multinational system for trading greenhouse gas emission allowances with free allowance
allocation. The EU ETS operates in the 28 EU countries and three EEA-EFTA Countries (Iceland,
Norway, and Liechtenstein). The EU ETS covers around 45% of the EU’s greenhouse gas
emissions including carbon dioxide, nitrous oxide, and perflourocarbons. Emissions limitations
are put in place for over 11,000 heavy energy-using installations in power generation and the
manufacturing industry as well as aircraft operators performing aviation activities in the EU and
EFTA states. From 2013 onwards, the cap on emissions from power stations and other fixed
installations is reduced by 1.74% every year.34
Program implementation is progressing in three phases: 2005-2007 (Phase I, also called the
trial phase), 2008-2012 (Phase II), and 2013-2020 (Phase III). Despite a somewhat rocky trial
31
See EPA, “Acid Rain Program”, Available at http://www.epa.gov/AIRMARKETS/programs/arp/index.html
32
See EPA, “Cap and Trade: Acid Rain Program Results”, Available at
http://www.epa.gov/capandtrade/documents/ctresults.pdf
33
Lauraine G. Chestnut and David M. Mills, “A Fresh Look at the Costs and Benefits of the U.S. Acid Rain Program”,
Journal of Environmental Management, Vol. 77, 2005, pp. 252-266.
34
European Commission, “The EU Emissions Trading System (EU ETS)”, Available at
http://ec.europa.eu/clima/publications/docs/factsheet_ets_en.pdf

32
phase where CO2 allowance prices dropped to zero, largely from an oversupply of allowances, the
program has achieved significant reductions in CO2 emission, independent of the 2009 economic
slowdown. As per a 2012 comprehensive report by the Environmental Defense Fund,35
the ETS
helped reduce over 480 million tons of CO2 between 2005 and 2008, equivalent to 8%-13% less
emissions than the “business-as-usual” scenario. ETS also helped in separating emissions from
economic growth during the 2009 recession, and even in EU countries that are growing. As with
the Acid Rain Program, emissions reductions were achieved at relatively low cost and without
much adverse effects on energy intensive sectors. Notably, companies and entrepreneurs have
responded with investments in a variety of profitable low-carbon ventures. In 2013, 72% of new
electricity generation capacity in the European Union came from renewable sources compared to
80% new generation from fossil fuels a decade back.36
As per the EDF report, the renewable
energy industry has created 70,000-90,000 more jobs in Germany than had the same growth been
alternatively powered by fossil fuels. In general, ETS is understood to be factor in accelerating the
pace of innovation within the European Union37
.
California’s Global Warming Solutions Act (AB32)
California’s Assembly Bill 32, the California Global Warming Solutions Act of 2006, passed
into law requirements for significantly reducing greenhouse gas emissions. AB 32 requires
California to reduce GHG emissions to 1990 levels by 2020. AB 32 requires that a scoping plan
be put in place and updated every five years to strategize how to cut GHG emissions. The AB32
35
Lucas M. Brown et al, “The EU Emissions Trading System: Results and Lessons Learned”, Environmental
Defense Fund 2012, http://www.edf.org/sites/default/files/EU_ETS_Lessons_Learned_Report_EDF.pdf
36
Renewable Energy Policy Network for the 21ST
Century, “Renewables 2014, Global Status Report” REN 21,
2014, Paris, France; http://www.ren21.net/portals/0/documents/resources/gsr/2014/gsr2014_full%20report_
low%20res.pdf
37
Karoline S. Roggea & Volker H. Hoffmann, “The impact of the EU ETS on the sectoral innovation system for
power generation technologies—Findings for Germany,” Energy Policy, Vol. 38 (12), pp. 7639-7652, 2010

33
program mainly differs from previously discussed programs in its scope. Reductions in GHG
emissions is stipulated to come from virtually all sectors of the economy and is to be accomplished
from a combination of policies, planning, direct regulations, market approaches, incentives and
voluntary efforts. These efforts target GHG emission reductions from cars and trucks, electricity
production, fuels, and other sources. The cap and trade portion of AB32, with allowance auction,
went into effect in 2013.38
The Environmental Defense Fund’s second year progress report on the AB32 cap and trade
program39
shows, that this “grand experiment” is delivering results similar to the Acid Rain and
the EU-ETS programs. The $902 million raised through allowance auction is budgeted for further
GHG and other harmful pollutant reductions, job growth, and rehabilitating communities adversely
affected by climate change. In 2013, California’s economy grew by 2% while emissions from
capped sources reduced by 4%. From 2010-2013, the state’s employment and personal income per
capita outpaced the respective national averages and this growth is projected to continue.
Advanced energy jobs grew 5 times faster than average state employment. Between 2002 and
2012, clean jobs grew ten times faster, while average income in the economy grew 12% higher
than the national average.
Finally, California is also fast becoming a clean technology innovation hub as AB32 propels
the state towards clean energy, fuels, cars and buildings. Since 2006, California has received $2.2
billion in venture capital, higher than all other states combined, into an increasing variety of green
projects. Not surprisingly, between 2009 and 2013, the state emitted 6.6% less CO2 per dollar of
38
California EPA Air Resources Board, “Assembly Bill 32 Overview” available at
http://www.arb.ca.gov/cc/ab32/ab32.htm
39
Katherine Hsia-Kiung and Erica Morehouse, “Carbon Market California: A Comprehensive Analysis of the
Golden State’s Cap and Trade Program, Year 2: 2014”, Environmental Defense Fund, 2014. Available at
http://www.edf.org/sites/default/files/content/carbon-market-california-year_two.pdf

34
output produced, ranking fifth in energy intensity of output in 2011, behind Connecticut,
Massachusetts, New York and Oregon.
The Regional Green House Gas Initiative (RGGI)
RGGI is a state-level market based regulatory program aimed at reducing carbon dioxide
emissions in the eastern United States, currently from the power sector. As stated in the 2005
memorandum of understanding (MOU), the overall program goal is to establish a cap-and-trade
program to stabilize and reduce emissions within participating states while staying consistent with
overall economic growth and the maintenance of a safe and reliable electric power supply
system40
. As of 2014, the RGGI member states include Connecticut, Delaware, Maine, Maryland,
Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. There is a cooperative
effort between these states to cap and reduce carbon dioxide emissions from the power sector.
RGGI is the first such US program to reduce carbon dioxide emissions from the power sector
through a regional cooperative as well as the first cap-and-trade program to auction the
majority of emissions allowances, generating revenue for issuing states.
The RGGI cap and trade program is made up of several elements. The multistate carbon
dioxide emissions cap represents the regional budget for carbon emissions from the power sector.
A single carbon dioxide allowance or permit allows for the emission of one short ton of carbon
dioxide from a regulated source issued by the state. After the 2012 program review, the nine RGGI
states set a new cap for 2014 of 91 million short tons of carbon dioxide. The cap then declines by
2.5 each year from 2015-2020. The regulated sources include fossil fuel fired power plants with a
capacity of 25 MW or greater within RGGI states. Since January of 2009, sources are required to
40
RGGI, “Memorandum of Understanding”, December 2005, http://rggi.org/docs/mou_12_20_05.pdf

35
possess carbon dioxide allowances that are equivalent to their emissions from a three year control
period. Another period began on January of 2015 and extends through December of 2017. This
control period requires that each RGGI regulated power plant must hold allowances equal to 50
percent of their emissions during the first two calendar years of each three-year control period and
hold allowances equal to 100 percent of their emissions at the end of the control period. Carbon
dioxide allowances are issued by each RGGI state in an amount defined in each state’s statute or
regulations.
Figure 2.1: RGGI CO2 Allowance Value from 2008-2014
Source: www.rggi.org
CO2 Allowance Value and Revenue under RGGI
The RGGI program has held 26 quarterly auctions since September 2008, where permits sold
for an average market clearing price of $2.73 between 2008 and December 2014. However, as
Figure 2.1 shows, prices have been steadily rising since September 2013, reaching as high as $5.10
per permit in the latest auction completed in December 2014. This rise is both expected in light of
the tightening emissions cap going into effect from 2014 and welcome, from the point of view of
potential revenue for member states. As per Market Monitor reports prepared by Potomac
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
9/1/2008
4/1/2009
11/1/2009
6/1/2010
1/1/2011
8/1/2011
3/1/2012
10/1/2012
5/1/2013
12/1/2013
7/1/2014
PriceperPermit
Auctionn Date
Price per Permit

36
Economics,41
RGGI’s independent observer of auctions, allowance auction markets remained
competitive with large bidder participation but without any evidence of market manipulation by a
single or a group of bidders.42
While permit prices fell below $2 between 2009 and 2012 due to an
oversupply of permits by states and a lack of demand from regulated entities due to recessionary
pressures,43
the bids to permit supply ratio has significantly rebounded due to cap tightening by
states and general economic recovery. All evidence indicates a well-functioning allowance market
for CO2 emissions that is responding to the recent excess demand, as theoretically predicted, by
pricing allowances higher.
Allowance auctions since 2008 has generated over $1.8 billion dollars in total auction
proceeds for the member states.44
Rhode Island’s cumulative auction proceeds as of December
2014 stood above $35.7 million.45
Table 2.1 illustrates revenue cumulatively earned and invested
by all current RGGI members. Any difference in total auction proceeds and total investment up to
2012 is committed to 2013 and future programs. The last column in the table therefore shows the
amount of auction funds that are still uncommitted to specific programs as of the December 2014
auction.46
41
Market Monitor reports are available at https://www.rggi.org/market/market_monitor
42
As per RGGI rules no single bidder or group of bidders can buy more than 25% allowances.
43
EDF and IETA, “RGGI The World’s Carbon Markets: A Case Study Guide to Emissions Trading”, Last updated
May 2013
44
Note, these numbers do not include New Jersey which left the RGGI coalition in 2012
45
Source: https://www.rggi.org/market/co2_auctions/results#state_proceeds
46
This information is compiled by combining information on allowance proceeds with allowance investments from
RGGI’s website. While the auction price and revenue information is current, investment information is only available
till 2012.

37
Table 2.1: RGGI Auction Proceeds Earned and Invested by Members 2008-2014
State
Total
Cumulative
Auction
Proceeds
(2008-2014)
Total
Cumulative
Auction
Proceeds
(2008-2012)
Total Invested
(2008-2012)
Total
Available
(2013-2014)
Total
Uncommitted
Available
(2013-2014)
Northern NE
Maine 59,680,379.88 34,246,622 24,838,808 34,841,571.88 25,433,757.88
New Hampshire†
76,335,390.34 42,552,629 35,103,889 41,231,501.34 33,782,761.34
Vermont 14,501,596.43 8,284,461 8,197,616 6,303,980.43 6,217,135.43
Southern NE
Connecticut 124,967,181.66 65,167,703 65,167,703 59,799,478.66 59,799,478.66
Massachusetts 316,488,293.21 178,921,781 174,517,434 141,970,859.21 137,566,512.21
Rhode Island 35,727,553.64 17,947,845 11,658,056 24,069,497.64 17,779,708.64
Mid-Atlantic
New York†
728,232,766.75 410,586,620 178,946,813 549,285,953.75 317,646,146.75
Delaware 63,852,728.77 29,690,897 18,569,018 45,283,710.77 34,161,831.77
Maryland 401,915,502.10 197,434,494 190,225,568 211,689,934.10 204,481,008.10
RGGI Total 1,821,701,392.78 984,833,052.00 707,224,905.00 1,114,476,487.78 836,868,340.78
Source: Compiled from www.rggi.org Note: †
States that allocated RGGI funds to the state general funds
Pathways for Recycling Auction Revenue
An allowance trading program that auctions the “right to pollute” effectively works as a tax
that can have adverse impacts on the producers and consumers of carbon intensive energy. The
academic literature in the environmental economics and policy arena has long recommended
reinvesting the revenue earned from selling permits back into the economy in various ways to
offset the resulting welfare loss. As per this literature, auction revenue can be used to provide lump
sum rebates to consumers, reduce taxes, and/or invest in transitioning to a low carbon sustainable
economy such as investing in technologies to upgrade carbon intensive sectors of the economy,

38
investing in promoting energy efficiency and renewable energy use, investing in public
infrastructure and mass transit, climate change adaptation etc.47
In a 2012 update on the cap and trade component of the AB32 program in California, Burtraw
and Szambelan provide the following insights on the use of auction revenue.48
These pathways are
conceptually applicable to any cap and trade program with allowance auction.
• Financing government expenditures: Auction revenue could be used to fund general
state government objectives such as education, healthcare, and infrastructure. More
effective use would be to fund programs that promote AB32 objectives such as helping
households, businesses, local and state government transition to low carbon
technologies and reduce emissions. Project examples include investments in
transportation, land use infrastructure, providing government support for clean
technology adoption, and assistance for groups vulnerable to climate change.
• Paying dividends to households: Auction proceeds could be returned to households
in the form of dividends in order to offset the higher energy costs from regulatory
programs. Dividends could also be returned on the grounds of compensation for
environmental degradation of the atmosphere, which is a commonly owned resource,
from carbon dioxide pollution.
• Reduce current taxes or prevent future taxes: While some taxes are essential for the
operational and program funding needs of the government, they can also distort
47
Dallas Burtraw, “Cap, Auction and Trade: Auctions and Revenue Recycling under Carbon Cap and Trade,”
Prepared for the U.S. House of Representatives Select Committee on Energy Independence and Global Warming,
Resources for the Future, Washington, DC, 2008.
48
Dallas Burtraw and Sarah Jo Szambelan, “A Primer on the Use of Allowance Value Created Under California’s
CO2 Cap-and-Trade Program”, May 11, 2012 http://next10.org/sites/next10.org/files/20120504_Primer_Revised_
V5.pdf.

39
incentives to work, save and invest affecting economic growth. Using auction revenue
to reduce tax burdens could ‘reincentivise’ these activities and aid economic growth.
A wealth of research has analyzed the practical implications of the theoretical pathways from
the perspectives of economic impacts and legal feasibility in the context of existing and proposed
programs. It is important to note that each of the following studies model scenarios proposed
within the program being studied.
A 2012 report by Next 10 and UC Berkeley modeled the economic impacts of investing
auction funds into eighteen different scenarios under the AB32 program.49
They model the impact
of investing $100 million on each of these scenarios on state GSP, jobs, and state tax revenue for
California. All scenarios yield monetary benefits that far outweigh the investment. For example,
investing in three separate residential energy efficiency programs (upgrading lighting, building
and appliance efficiencies) add $2.8 billion to state GSP in 2020 (compared to business-as-usual),
22,981 jobs (Full Time Equivalent), and $206 million in tax revenues.50
Investing in clean and
public transportation adds $1.3 billion to state GSP, 7944 jobs, and $84 million in tax revenues.
They also find that spending funds on providing dividends or rebates to tax-payers to compensate
for adverse impacts of the program as well as using funds for general state expenditures can be
challenged in courts and has a high legal risk of implementation.
Two reports by ICF International on the AB32 program (2013) and the proposed Minnesota
Green Solutions Act (2010) have also found high net benefits of investing auction revenue into
49
Next 10, “Using the Allowance Value from California’s Carbon Trading System: Legal Risk Factors, Impact to
Ratepayers and the Economy”, May 2012 http://www.next10.org/sites/next10.huang.radicaldesigns.org/files/12-
NXT-008_Cap-Trade_r2.pdf.
50
This author calculation from the Next 10 report results does not reflect the “Green Bank” scenario which allocates
$100 million in loans for energy efficiency and renewable energy projects.

40
alternative projects along the lines of the above pathways.51
For Minnesota, the ICF study modeled
six policy scenarios of investing auction revenue including per capita rebates, consumer incentives,
business incentives, public transportation, worker retraining and hybrid (equal investment in the
previous five scenarios). Spending on per capita rebates was found to impact state GSP and jobs
the least. Compared to rebates, spending on public transportation increases employment by 12-
15% and state output by 1-3 % (using 2020 and 2030 time frames); spending on worker retraining
increases employment by 18-20% and output by 32-39%; and spending on a hybrid approach
returns the highest employment and output gains at 33-56% and 61-65% respectively.
Similarly, the AB32 study completed by ICF models the economic impact of using allowance
value in five policy scenarios: lump sum dividends to all California residents, investment in energy
efficiency, clean transportation, a hybrid strategy involving the previous three programs and free
allocation of allowance to the fuels sector. All five scenarios yielded benefits greater than diverting
funds to the state General Fund. Results show that investments in energy efficiency and clean
transportation lead to the highest job growth while dividend maximizes equity and income growth.
Investing in clean transportation would create 75% more jobs than free allocation of allowances,
while providing dividends would increase income by 20% more than free allowances to the fuels
sector.
Both AB32 and the Minnesota Green Solutions Act propose auction revenue allocation
between program specific government expenditures and rebates or dividends, i.e., the blended
51
See Bansari Saha and Jan Mazurek, “Modeling the Economic Impacts of AB32 Auction Proceeds Investment
Opportunities”, December 1, 2013 (http://www.icfi.com/insights/reports/2013/modeling-economic-impacts-of-ab-
32-auction-proceeds-investment-opportunities) and ICF International, “Analysis of the Economic, Environmental
and Public Health Impact and Potential Revenues in the State of Minnesota”, August 30, 2010
(http://archive.leg.state.mn.us/docs/2010/mandated/100946.pdf)

41
scenario analyzed in the ICF reports, potentially generating the maximum benefits for state
residents.
RGGI allowance value investment priorities are similar to AB32 and the proposed Minnesota
Green Solutions Act. Member states invest in energy efficiency, clean and renewable energy, GHG
reduction and direct bill assistance programs. The following sections discuss RGGI benefits in
detail, including impact on CO2 emissions, revenue recycling programs and related benefits, and
preliminary program outcomes assessment for Rhode Island.
Benefits of Participating in the Regional Green House Gas Initiative
CO2 Emissions: Regional and Rhode Island Trends
As per the 2005 RGGI MOU, the primary purpose of establishing RGGI was “stabilizing
and reducing CO2 emissions within the Signatory States.” Figures 2.2a-b show regional CO2
emissions totals from all sectors of the RGGI economy as well as from the power sector of all
RGGI states. Emissions, measured in million metric tons of carbon dioxide equivalent
(MMtCO2e), are graphed for the period 1990-2012. 1990 is an important benchmark since RGGI
uses 1990 as the base year for emission reductions by 2020. Figures 2.3b-c illustrate state-level
emissions from all sectors and the power sector in each of the nine member states. Figures 2.4a-b
illustrate CO2 emissions from all sectors and the power sector specifically for Rhode Island.

42
Figure 2.2a: Total CO2 Emissions in RGGI Region from 1990-2012
Source: Compiled from EPA’s State CO2 Energy Emissions;
http://epa.gov/statelocalclimate/resources/state_energyco2inv.html
Figure 2.2b: Total Power Sector CO2 Emissions in the RGGI Region from 1990-2012
Source: Compiled from EPA’s State CO2 Energy Emissions Data source in Figure 2.2a
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
MillionMetrictonsCO2
equivalent
Year
RGGI State Totals
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
MillionMetricTonsCO2
equivalent
Year
RGGI States

43
Figure 2.3a: CO2 Emissions by RGGI States from 1990-2012
Source: Compiled from EPA’s State CO2 Energy Emissions; Data link available in Fig. 2.2a
Figure 2.3b: Power Sector CO2 Emissions by RGGI States from 1990-2012
Source: Compiled from EPA’s State CO2 Energy Emissions; Data link available in Fig. 2.2a
0.00
50.00
100.00
150.00
200.00
250.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
equivalent
Year
Connecticut
Deleware
Maine
Maryland
Massachusetts
New Hampshire
New York
Rhode Island
Vermont
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
equivalent
Year
Connecticut
Deleware
Maine
Maryland
Massachusetts
New Hampshire
New York
Rhode Island
Vermont

44
Figure 2.4a: CO2 Emissions in Rhode Island from 1990-2012
Source: Compiled from EPA’s State CO2 Energy Emissions; Data link available in
Fig. 2.2a
Figure 2.4b: Power Sector CO2 Emissions in Rhode Island from 1990-2012
Source: Compiled from EPA’s State CO2 Energy Emissions; Data link available in
Fig. 2.2a
The charts illustrate the overall success of RGGI in meeting its stated objective of reducing
CO2 emissions below 1990 levels. Regional CO2 emissions, both from the whole economy and the
power sector have indeed been falling. As expected, the decline from the power sector is sharper
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
equivalent
Year
Rhode Island
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
equivalent
Year
Rhode Island

45
than all sectors combined. Combined GHG emission in the region is projected to reduce by 25%
of 1990 emissions by 2020.52
As illustrated by the state-level emissions graphs, the regional trend in CO2 reduction from
all sectors, relative to individual 1990 levels, is largely driven by reductions made by New York,
Maryland, Massachusetts, Connecticut, and to an extent, Delaware. The northern New England
state of Maine has achieved relatively small, but modest reductions as well. These same states,
except Maine, have also achieved the largest emissions reductions from the electricity sector. In
northern New England, Vermont has achieved impressive CO2 reductions from the power sector.
Overall CO2 emissions from every member state, except Rhode Island and Vermont, have
decreased to levels lower than their individual 1990 levels. Rhode Island in 2012 emitted 19%
more CO2 than in 1990 while Vermont emitted 1.3% more. However, total CO2 emissions seem
to have stabilized and trending downward in Rhode Island. In terms of emissions from the power
sector, the key target of RGGI regulations, Rhode Island’s power sources generated 401% more
CO2 compared to the state’s 1990 levels. The state is the only current RGGI member where power
sector emissions increased relative to 1990. New Jersey, which left the coalition in 2012, is the
other state in the original RGGI territory with higher CO2 emissions from the power sector than
1990 levels.
While Rhode Island was the second smallest CO2 emitter (after Vermont) in absolute terms
in 1990, CO2 emissions from the power sector is currently comparable to that from New
Hampshire, an economy that is larger than Rhode Island in terms of total output, and higher than
52
David Cash, “EPA’s Proposed Clean Power Plan & Regional Compliance Options”, presentation prepared for the
Assessing State Goals and Challenges under EPA’s Clean Power Plan seminar, RFF and EPRI, October 14, 2014,
Washington, DC.

46
Maine, an economy that is comparable to Rhode Island in total output.53
The state has steadily
reduced overall CO2 emissions from its highest point in 1998, but further progress is required to
be compatible, and compete, with its RGGI neighbors in the southern New England region and
elsewhere. The significant growth in emissions from the power sector in Rhode Island is notable
given natural gas, which is less polluting than coal, is the primary fuel used to generate power by
all six of Rhode Island’s facilities regulated under the program. The noticeable drop in emissions
in 2012, the last year of state-level emissions data availability, is certainly encouraging.
Economic Growth: Regional and Rhode Island Trends
Another RGGI objective is to achieve CO2 reductions without sacrificing economic growth
in the signatory states. Table 2.2 and Figures 2.5a-b confirm that this objective is being met with
various degrees of success. The total regional output in real terms almost tripled between 1990 and
2012. Despite a population growth of over 11% during the same period, the regional economy as
a whole has used 11% less energy, emitted 18% less CO2 from all sources and 40% less CO2 from
the power sector.54
This finding breaks the conventional link between economic growth and energy
consumption that fuels the growth. As with the European Union and California, economic growth
in the RGGI region has also been steadily turning ‘green’ over the years analyzed.
State-level graphs further exploring the growth and energy relationship for all members
except Rhode Island is available in Appendix B. Table 2.2 illustrates the net change in the related
variables between 1990 and 2012 for all RGGI members. States who doubled the size of their
53
The respective state GSPs in real terms for 2013 were as follows: Rhode Island ($53184), New Hampshire ($67848),
and Maine ($54755), all in millions of dollars.
54
Regional totals (for GSP, population, energy use, CO2 emissions) is calculated by summing each variable from
individual member states for each year from 1990-2012. Growth in each variable for each incremental year after 1990
is calculated as a percentage change between a given year and 1990. Thus growth figures reported in Table 2 present
overall growth in the five reported variables between the two end years 1990 and 2012.

Strategies Competitive RI Final v.6

Strategies Competitive RI Final v.6

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